Investors Expect US Dollar’s Safety Despite Rising Inflation

A new trading month has started pretty much on the same note as the previous one: rising inflation and a stronger US dollar. Last Friday, inflation in the Eurozone and the United States exceeded expectations.

In Germany, for example, it is above 4%, and the last time the annual inflation was as high, the interest rates were higher still. In the US, the Core PCE inflation rose by +0.3% in the previous month. This is the Fed’s favorite way of measuring inflation because it does not consider energy and food prices.

Speaking of energy prices, they are going through the roof. Last week, some interesting milestones were reached. First, Brent crude oil has reached $80/barrel, a 3-year high. Second, Asian coal has reached $203 a tonne, also a record. Natural gas in Europe and Asia hit a record high as well, $34/mBtu.

Although energy prices are not included in the Core PCE calculation, Core PCE is still on the rise, which is evident from Friday’s data. If we judge by the M2 (i.e., money supply)’s correlation to inflation, as shown by the chart below, then inflation is just about to explode.... More  info:  blog  FXOpen